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Optimality criteria of hybrid inflation-price level targeting

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  • Bokor, László
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    Abstract

    This paper provides a comprehensive analysis of the relative performance of inflation targeting, price level targeting, and hybrid targeting of them in a simple three-period steady state to steady state economy facing transmission lag, and derives optimal policies implementing commitment solution under all set of hybrid expectations, social preference, and cost-push shock persistence. The main intention of the examination is to reveal the nature of the interrelations between economic and policy parameters.

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    File URL: http://mpra.ub.uni-muenchen.de/10278/
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    File URL: http://mpra.ub.uni-muenchen.de/25356/
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    Bibliographic Info

    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10278.

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    Date of creation: Sep 2007
    Date of revision: Jul 2008
    Handle: RePEc:pra:mprapa:10278

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    Related research

    Keywords: inflation targeting; price level targeting; hybrid targeting; optimal policy;

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    1. Jeremy Rudd & Karl Whelan, 2001. "New tests of the New-Keynesian Phillips curve," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2001-30, Board of Governors of the Federal Reserve System (U.S.).
    2. Nicoletta Batini & Anthony Yates, 2001. "Hybrid inflation and price level targeting," Bank of England working papers, Bank of England 135, Bank of England.
    3. Julio J. Rotemberg & Michael Woodford, 1998. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy: Expanded Version," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0233, National Bureau of Economic Research, Inc.
    4. Clarida, R. & Gali, J. & Gertler, M., 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Working Papers, C.V. Starr Center for Applied Economics, New York University 99-13, C.V. Starr Center for Applied Economics, New York University.
    5. M. H. Khalil Timamy, 2005. "Debate," Review of African Political Economy, Taylor & Francis Journals, Taylor & Francis Journals, vol. 32(104-105), pages 383-393, June.
    6. Argia M. Sbordone, 2007. "Inflation persistence: alternative interpretations and policy implications," Staff Reports, Federal Reserve Bank of New York 286, Federal Reserve Bank of New York.
    7. Jordi Galí & Mark Gertler & David López-Salido, 2005. "Robustness of the Estimates of the Hybrid New Keynesian Phillips Curve," Banco de Espa�a Working Papers, Banco de Espa�a 0520, Banco de Espa�a.
    8. Lindé, Jesper, 2001. "Estimating New-Keynesian Phillips Curves: A Full Information Maximum Likelihood Approach," Working Paper Series, Sveriges Riksbank (Central Bank of Sweden) 129, Sveriges Riksbank (Central Bank of Sweden), revised 30 Apr 2001.
    9. Alexander L. Wolman, 1999. "Real Implications of the Zero Bound on Nominal Interest Rates," Computing in Economics and Finance 1999, Society for Computational Economics 1152, Society for Computational Economics.
    10. Berg, Claes & Jonung, Lars, 1999. "Pioneering price level targeting: The Swedish experience 1931-1937," Journal of Monetary Economics, Elsevier, Elsevier, vol. 43(3), pages 525-551, June.
    11. Nessen, Marianne & Vestin, David, 2005. "Average Inflation Targeting," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 37(5), pages 837-63, October.
    12. Vestin, David, 2006. "Price-level versus inflation targeting," Journal of Monetary Economics, Elsevier, Elsevier, vol. 53(7), pages 1361-1376, October.
    13. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(4), pages 589-610, August.
    14. Svensson, Lars E O, 1999. "Price-Level Targeting versus Inflation Targeting: A Free Lunch?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 31(3), pages 277-95, August.
    15. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 473-91, June.
    16. Michael Woodford, 2000. "Pitfalls of Forward-Looking Monetary Policy," American Economic Review, American Economic Association, American Economic Association, vol. 90(2), pages 100-104, May.
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